Tuesday, March 04, 2014

Bonds backed by rental properties seen as a new financial destabilizer

Progressive activists are critical of the latest financial product on Wall Street’s plate:  bonds backed by rental income from leased single family homes or townhomes.  The Huffington Post has a story by Ben Hallman and Jillian Berman on the issue here.  
  
The problem is a flip of the 2008 housing crisis.  Banks have become very strict with lending standards (sometimes compromised by identity theft of some borrowers), while housing prices in some cities rise again.  As a result, the market favors cash buyers, or sometimes “as is” sales to specialty companies, who often rent the properties and don’t properly maintain them.
   
This can become testy in some communities with many very old homes, where there can be undocumented problems with mold, lead paid, and even asbestos.  I recall a conversation about this one time at a Home Depot in northern Virginia, with a salesperson who sees these problems as time bombs for entire markets. 

In any case, ordinary investors can probably buy into funds that use these bonds, just as they can buy into real estate investment trusts that own many apartment buildings.   

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